State-run, Canara Bank moves a step ahead of SBI in providing a combination of fixed and floating rate home loans. The bank has frozen its interest rate for five years as compared to SBI that has fixed the interest rate for the first year.
Under this scheme, Canara Bank will provide home loans at a fixed rate for the first five years and thereby charge a floating rate that will be 200 basis points below the benchmark prime lending rate (BPLR) prevailing at that time. The scheme targets to capture the insecurity due to the fluctuating interest rates.
With this launch, the bank is set to compete with SBI and HDFC through attracting the borrowers to shift to Canara Bank. The bank has decided to fix the interest rate for 20 years by applying different rates to different slabs.
For home loans up to Rs 30 lakh, the bank is going to charge a fixed rate of 8.25% in the first year and 9.25% for the period between the second and fifth year. After the completion of fifth year until the twentieth year, the bank will charge an interest rate that will be 2% below the prevalent BPLR. However the bank has capped the interest rate at 10% for the period between sixth and twentieth year. This means that even if the BPLR falls below 12%, the interest rate charged will not fall below 10%.
For loans ranging between Rs 30 lakh and Rs 99 lakh, Cnanra Bank will charge another 50 basis points. During the first year of the loan, interest rate will be fixed at 8.75% and 9.75% will be charged from the second to fifth year. For the further tenure until twentieth year, the rate will be 250 basis points below the prevailing BPLR. Moreover to attract the customers, the bank is extending the loan at zero processing fees.
Canara Bank Chairman and Managing Director, AC Mahajan said that the bank has made the scheme valid for a longer tenure because it wants the customers to buy a house at affordable prices. "After meeting with various authorities, we realised that they were uncomfortable with banks not disclosing the EMI for the entire loan tenure. They were of the view that the customer had the right to know the interest rate during the life of the loan," said Mahajan.
He added that, "We have not only addressed that problem but also taken measures to kickstart demand for the housing sector by offering the scheme up to December. Our purpose is to pass on the benefit to those sections of society which are least vocal, and not strong and capable of negotiating individually for better rates of interest."
In a meeting with the chiefs of PSU banks, RBI has directed SBI to inform their borrowers of 8% home loan scheme about the likely EMI after the completion of one year.
Meanwhile Canara Bank has also reduced the auto loan rates by 100 basis points to 11%. The new rate is fixed for a period of three years unlike SBI where the rate has been frozen for one year. This scheme is valid for a longer period up to December 2009 against the validity of up to April for SBI scheme.